Why Medicaid Expansion Could Be Bad News for Poor Americans

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On November 9th, 2016, the road to repealing Obamacare looked relatively simple. Republicans won surprise victories in the presidential and Senate elections while maintaining a comfortable majority in the House. With full control of Washington DC, all they needed was a path through reconciliation – the same budget mechanism that allowed Democrats to pass the Affordable Care Act – to deliver on their seven-year promise, a pledge that had returned them from the political wilderness in which they landed eight years earlier.

Almost eight months later, Republicans on Capitol Hill face a grim prospect of either passing a bill that hardly anyone supports, or admit failure and wait for Obamacare to derail on its own and asking Democrats to rescue them.

What happened? Despite having several years to develop a repeal-and-replace plan, Republicans on Capitol Hill have looked unprepared for leadership, and at odds with each other on the priorities in health-care reform. The biggest problem to emerge, especially in the Senate, is a lack of preparation for the entirely predictable reaction to a rollback of the Medicaid expansion, which Republicans have long sought but have done little to put into a narrative that can compete in the political marketplace.

Medicaid has provided a federal-state partnership for health-insurance coverage for Americans below the poverty line since 1965, with enrollment access based on eligibility categories. Under the core program, the federal government reimburses states for 57 percent of Medicaid expenses on average. While the Medicaid program is technically voluntary for states, all 50 have been in the program since at least 1982.

Seven years ago, a Democrat-controlled Congress approved the Medicaid expansion for states that adopted it to cover individuals above normal eligibility (up to 138 percent of the poverty line) that the ACA’s insurance exchanges couldn’t easily reach with tax subsidies alone. That added as many as 11 million more Americans to Medicaid rolls, but at a much higher price. The government started off paying 100 percent of the costs from the expansion enrollees in the first three years of the program.

In 2017, the reimbursement rate dropped to 95 percent, and by 2020 it will level off at 90 percent. It created a strange layer of people who get far more direct subsidies on health insurance from Washington than those below them under the poverty line, an artifact of the need to demonstrate a positive reduction in the uninsured.

At the time, the expansion was justified by predictions that getting people into the system would eventually reduce the costs of the expansion. Unfortunately, as Charles Blahous points out this week, the expansion has increased per-person costs, and not in a small way. For 2015 and 2016, actual per-person costs ran sixty percent higher than predicted at the start of the Obamacare/Medicaid expansion implementation. In the most recent report from the Centers for Medicare and Medicaid Services, projected per-person costs for 2022 has now been changed from 2013’s prediction of $4,875 to $7,436 – fifty-two percent higher than predicted.

Blahous also notes another trend in the overlooked actuarial reports. Projected expenditures for the expansion enrollees will grow faster than those in the core program. Rather than serving as a short-term release of pent-up demand, the funding for the expansion will crowd out the resources necessary for those truly in poverty. “In other words,” Blahous writes, “expansion has made Medicaid spending more poorly targeted. We’re already spending a far greater share than expected on Medicaid’s relatively less needy participants, and this poor targeting is expected to grow worse.”

All of this provides Republicans with plenty of ammunition to argue for a repeal, and a phase-out of the expansion’s differential reimbursements, if not the expansion itself. A better use of Medicaid resources would focus on those below the poverty line, not above it, and more participation from the states in the costs would incentivize better efficiency. The elimination of mandates and the taxes that funded these mistargeted subsidies could help boost the economy and create jobs if used properly.

Instead, the lack of preparation and unity for this debate created a vacuum among Republicans, which allowed Democrats to create the dominant narratives on reductions in coverage and worse. Sen. Elizabeth Warren announced on the Senate floor that “these cuts are blood money,” while pounding her fist on the podium. “People will die! Let’s be very clear,” she continued, “Senate Republicans are paying for tax cuts for the wealthy with American lives.”

Furthermore, the need to show cost savings for reconciliation has left Republicans open to the charge that they are cutting Medicaid spending. The Senate bill, like the House bill before it, actually leaves in place “modest annual increases” for Medicaid, as The New York Times acknowledges. The bills eliminate the massive projected increases in Medicaid spending necessary to keep subsidizing Medicaid expansion enrollees at far greater rates than those below the poverty line but do not reduce Medicaid spending in any year within the decade-long projection. Democrats have pushed back by claiming that rising costs effectively transform the more modest increases into cuts, but as Blahous demonstrates, the Medicaid expansion itself has created those exploding costs.

Rather than focus on the necessities of reform and creating a unified platform for it, Republicans in the House and then in the Senate have let themselves get stampeded by the Democrats’ scare tactics and demonization. That manifested itself in both chambers in legislation that tried to nibble at the edges of repeal and reform rather than tackle them directly, and in both cases required White House intervention to remind Republicans that voters expect them to fulfill their promises, and to govern.

The clock is ticking on this debacle. Fox News says Mitch McConnell wants his caucus to settle on a bill by Friday to get a qualifying CBO score for reconciliation and a vote after the July 4th recess. After that, Congress must pivot to budget negotiations and other priorities. If Republicans in both chambers can’t find a way to pass a repeal-and-replace bill this year after a seven-year head start, and can’t find a way to offer a competing narrative that captures the ongoing collapse of the Obamacare system, the clock will run out in more ways than one.

Ed Morrissey has been writing about politics since 2003 in his blog, Captain's Quarters, and now on HotAir.com. “His new book, "Going Red: The Two Million Voters Who Will Elect the Next President -- and How Conservatives Can Win Them" is must reading for all conservatives.